2020 (11) TMI 1058 - HC - GST

Recovery of refund - royalty paid for exploration of Mineral Oil and Natural Gas - tax paid by the petitioner in the form of royalty can be considered to be a consideration for service rendered, or not - HELD THAT - The impugned show-cause notice being erroneous and wholly without jurisdiction and the representations preferred by the petitioner in response to the earlier show-cause notices not having been considered, the petitioners are aggrieved, and therefore the present writ petition has been filed. The learned senior counsel therefore prays for adequate interim relief seeking stay of the impugned show-cause notice. Issue Notice Returnable after 4 (four) weeks .

Summary

Issues:
1. Quashing of Show-Cause Notices seeking recovery of GST refunds granted to the petitioner.
2. Jurisdiction of the GST Department to demand service tax on royalty paid for exploration of Oil and Natural Gas.
3. Validity of the actions of the Department in demanding recovery of refunds without following due process under the GST Act.

Analysis:
1. The petitioner sought to quash Show-Cause Notices issued by the GST Department for the recovery of GST refunds granted earlier. The petitioner argued that similar notices were previously issued and responded to, but new ones were sent without disposing of the earlier representation. The petitioner contended that once a refund is sanctioned, there is no provision for recovery unless through appeal or revision petition. The petitioner claimed the actions of the Department were erroneous and without jurisdiction.

2. The petitioner, engaged in oil and gas exploration under a license from the Government of India, argued that the imposition of royalty by the Union Government cannot be considered a consideration for services rendered. The petitioner asserted that the GST Act was intended to cover only ordinary commercial transactions, excluding government functions. The petitioner contended that GST cannot be imposed on royalties paid for exploration activities as it would amount to taxing a privilege granted by the government, which is beyond the scope of the GST Act.

3. The petitioner's counsel highlighted that the demand for service tax on royalties paid for mineral oil and natural gas exploration was contrary to the Constitutional Scheme. The counsel argued that once a refund is granted under the GST Act, the Department cannot recover it without following due process. The counsel emphasized that the Department's actions were erroneous and lacked jurisdiction, as recovery or cancellation of refunds should be through proper legal procedures like appeals or revisions.

In response, the GST Department sought time to file a counter affidavit. The Court issued notice returnable after four weeks and directed the impugned show-cause notices and consequential actions to be kept in abeyance until further orders. The case revolves around the legality of the Department's actions in demanding recovery of GST refunds without following due process and the jurisdiction to impose service tax on royalties paid for oil and gas exploration, raising significant Constitutional and procedural considerations.